Hullman Ltd prepares to 31 March each year. Consider each of the following situations and determine in each case whether or not a provision should be recognised in the company’s for the year to 31 March 2018.
(a) On 23 January 2018, the board of directors decided to close down one of the company’s operations. By 31 March 2018, this decision had been announced to the workforce and a detailed plan had been drawn up for its implementation. The closure would involve redundancy payments of £375,000.
(b) On 12 March 2018, the directors decided to close down another of the company’s operations. This would involve redundancy payments of £250,000. At 31 March 2018, the decision had not been announced and had not yet been acted upon.
(c) For the past few years, the company has been conducting two operations which cause environmental damage. One of these operations is in a country with legislation which requires companies to rectify any environmental damage which they cause. The other is in a country with no such legislation. The costs of rectifying the damage caused to date by these two operations are estimated at £5 million and £10 million respectively.
(d) At 31 March 2018, the company owns a fleet of motor lorries, all of which require an annual service. This servicing work is expected to occur in the first few months of the year to 31 March 2019, at an estimated cost of £50,000.
